In the three months before regulators closed New Frontier Bank in Greeley, hundreds of worried customers already were abandoning it, draining the city’s biggest bank of approximately $170 million in deposits, according to a government source.

The “bank run,” driven by whispers that New Frontier could inevitably close, helped hasten the bank’s death spiral by further draining an already cash-starved institution. Its closure on April 10 was the nation’s most costly bank failure this year.

While banks under heavy regula tory scrutiny sometimes see a falloff in business, government officials characterized the magnitude of New Frontier’s run — events often associated with the Great Depression — as unusual.

“It baffles me,” said Colorado’s acting bank commissioner, Fred Joseph. “We haven’t had a bank failure in this state in over 10 years. But you wonder, why do people still do that” when deposits are insured by the federal government.

Modern-day bank runs are so rare that Federal Deposit Insurance Corp. officials don’t track them. Only a handful have surfaced in recent decades.

Last year, customers of mortgage giant IndyMac lined up to close 7 percent of its accounts, contributing to its downfall. But bank customers generally understand that their deposits, up to $250,000, are covered by the FDIC. Still, the current economic downturn, the worst since the 1930s, makes for unusual circumstances, including stepped-up levels of fear.

“People are nervous,” Joseph said.

In the end, the $2 billion New Frontier was so burdened by troubled assets and depleted deposits that the federal government could find no other savior bank to rescue it — only the second time this year that has happened nationally.

Time will tell what the specific triggers were behind the run. But the bank’s managing receiver, Frederick Ozyp, said steady news coverage surrounding federal enforcement orders and lawsuits against bank managers obviously were influential, fueling a wave of doubt about its health that only swelled.

In January, the FDIC ordered the bank to replace Larry Seastrom, its longtime president and founder, as well as its senior loan officer, Greg Bell.

Between that time and April 10, when the bank closed, depositors withdrew an average of $13 million a week, 18 percent of the core deposits held at the bank when the year started, the government source said.

Because the run played out more diffusely and subtly than the spectacled bank runs of old, its scope went unnoticed by the larger Greeley public.

But inside the 35th Avenue bank, staffers were growing apprehensive. They kept confronting customers’ questions about the bank’s poor health, then watched as they went on to close their accounts. In February and at the end of March, the pace of the transactions only quickened.

“People became jittery, and they were obviously closing more accounts than in a normal mode,” said Bob Bernd, customer-service manager for New Frontier who served as the bank’s greeter. “Basically, people were asking, ‘What’s going to happen? What if the bank closes?’ And obviously, everybody tried to be honest and forthright, saying we didn’t know either but that the deposits are safe. We kept saying we would continue to be there, even if the worst happened.”

Meanwhile, departing customers were heading to other banks across Greeley.

“People here were backed up trying to keep track of one new account opening after another,” said Leroy Leavitt, president of Greeley’s New West Bank. “The rumor all over town was that New Frontier would go broke, there’s likely to be a sale or that it would be taken over by another bank.”

As New Frontier’s coffers ran lower and lower, New West’s deposits surged by late March — with $10 million more in deposits than it held on Jan. 1.

At least one local politician was part of the New Frontier exodus. Bill Garcia, chairman of the Weld County Commission, closed his personal accounts four days before the bank was shut down.

News that one of the bank’s biggest borrowers, Johnson Dairy, had filed for bankruptcy in late February and was involved in a dispute with New Frontier prompted him to play it safe with his funds.

“You don’t know what’s going to happen to your money, even if it’s frozen just over a weekend,” Garcia said.

The run on New Frontier, Garcia believes, could have had its roots in concerns stretching back to the middle of 2008. In June, word had reached the treasurer of the county, which had deposits with New Frontier, that the bank was being closely examined by regulators, Garcia said.

The treasurer’s recommendation: Pull the plug. “So we did. It’s sad for the community because the bank’s customer service was great and they did a lot for the community. It’s hard to believe it’s gone.”

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